A handful of Seattle small business owners want Tacoma business owners to know that adjusting to mandatory paid sick leave for employees will be a lot easier than they may think.
“Don’t be terrified of it. Don’t make grandiose statements like ‘everyone’s going to close because of this,’ ” said Dave Meinert, who owns six neighborhood restaurants in Seattle. “Are you going to have to make adjustments and be smart? Yes.”
His assessment of Seattle’s paid sick leave law, in effect since October 2012, was echoed by the owner of a local chain of ice cream shops and the CEO of a consignment clothing retailer with operations in five states.
Their advice comes a few weeks after the Tacoma City Council voted 8-1 to become the second city in the state to require businesses to give paid sick leave to employees. Advocates point to their latest victory as evidence of growing acceptance of paid sick leave laws among political leaders and businesses alike.
Two random surveys of 300 Seattle business owners, taken by the University of Washington immediately after the city’s law went into effect as well as a year later, showed about a third of employers had some initial frustration with the administrative tasks associated with the law, but those quickly faded. Most employers support Seattle’s law, the surveys showed, and the cost of providing paid sick leave was much lower than anticipated — less than 1 percent of total revenue.
But the owner of eight McDonald’s franchises in Seattle is not as sanguine. David Santillanes has been the owner-operator of those fast-food restaurants for 16 years. He also owns two in Bellevue.
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The sick leave requirement has led to an increase in overtime costs, Santillanes said, because people are calling in sick a lot more. That requires more last-minute staffing to cover the shifts, cutting into his already thin profit margin.
He’s raised prices on certain items, but he has to be careful not to alienate his customers, who place a high value on inexpensive food.
“It’s a delicate balance, but our customers notice,” he said. “For the most part in Seattle, when they understand the reason behind (the price increase), most of them have supported it. Obviously we’ve lost some customers, but most feel they have to do their part too.”
Tacoma’s law takes effect about a year from now. Between now and then, the city has to iron out the rules that will govern how the sick leave law will work. City Attorney Elizabeth Pauli said public hearings could begin in May. The rules will be finalized “as soon as possible” to allow businesses time to adjust to the law.
SICK LEAVE POLICIES ELSEWHERE
Tacoma does not have the economic firepower of Seattle or San Francisco, where mandatory paid sick leave rules got their start in 2006. But, thanks largely to an aggressive campaign in New Jersey to pass city ordinances as an end-run around an unwilling governor, Tacoma is not as much an outlier as it might seem. In fact, among the 18 cities that have approved sick leave policies, it falls in the middle of the pack by population and median household income.
Among midsized cities that have passed sick leave laws is Jersey City, New Jersey. Its law went into effect in January 2014. That city has about 257,000 residents to Tacoma’s 203,000.
The Jersey City paid sick leave law was passed shortly after the new mayor was elected, said Maria Nieves, the president and CEO of the Hudson County Chamber of Commerce, leaving businesses with little time to comply. Business owners also worried that the law would raise costs.
Jersey City Mayor Steven Fulop said 40,000 people in his city had been working without paid sick leave and he wanted to change that.
“The business community was pushing back, saying (sick leave) would be an unfair burden,” Fulop said. “That was something I didn’t really sympathize with because it was important to implement for working families.”
Like Tacoma, Jersey City’s unemployment rate is higher than the state average. The gap in unemployment rate between Jersey City and the state as a whole is narrowing as the economy recovers, Fulop said.
“We are growing, and as the city continues to change you want to make sure you are providing opportunities for working families to share in the benefits of a growing city,” Fulop said.
Jersey City has commissioned a study with Rutgers University to examine the first year of the city’s sick leave law, Fulop said. The report is due at the end of the month.
For businesses in Jersey City, adding sick leave to the list of other benefits they have to track has had little impact on day-to-day operations or the balance sheet, said Eric Fleming, president of the Downtown Business Association of Jersey City.
“It can be a question of whether you want to grow your staff,” Fleming said. Jersey City requires businesses with 10 or more employees to offer paid sick leave. “I don’t know anybody that has laid somebody off because of it.”
Even though Jersey City has had a sick leave policy for a year, businesses are still skittish, Fleming said. The law requires them to keep records for three years. If the business cannot produce the records when asked, he said, the city can assume the business is violating the law.
“It’s the potential liability of the thing that should cause the Tacoma people to worry,” he said.
Nearby East Orange, New Jersey, became the fourth city in the state to pass a paid sick leave law last fall. East Orange requires businesses to offer up to five days of paid sick leave, depending on the size of the company.
Mayor Lester Taylor III said he was approached by the advocacy group New Jersey Working Families Alliance about sick leave shortly after becoming mayor in January 2014.
Paid sick leave made sense to Taylor and his City Council for health and economic reasons. The East Orange Chamber of Commerce backed the effort, saying paid sick leave would help businesses retain and attract qualified employees.
The city decided to act in the absence of action at the state level.
“The paid sick leave ordinance had not gotten much traction through the New Jersey governor (Chris Christie) or the state legislature,” Taylor said.
Not all New Jersey employers are supportive. Last week, a coalition of businesses filed a lawsuit seeking to overturn a voter-approved sick leave law in Trenton, New Jersey. The suit alleges the law is unconstitutional and contradicts state laws.
WHAT OTHER RESEARCH SHOWS
Studies on sick leave laws in Seattle and San Francisco are already in, and the results show businesses there generally favor the laws.
San Francisco’s law has been in effect since 2007, and research published in the American Journal of Public Health showed 99 percent of businesses with more than 20 employees offered sick leave two years after its passage.
While some businesses reported lower profits and reduced other employee benefits to offset the cost of providing sick leave to employees, they also reported higher morale among workers. Seven in 10 employers said they supported the city’s sick leave law.
In Seattle, University of Washington researcher Jennifer Romich was part of a team that surveyed businesses before and after the city’s sick leave law was implemented in the fall of 2012.
The survey gave a window into compliance. Large employers are required to offer the most leave, and the survey found large businesses also reported the lowest rates of compliance. Only 45 percent of large employers said they were offering the minimum required accrual amount. Romich’s report offered some theories as to why, but they boil down to either ignorance of the law or a misunderstanding of it.
The most striking difference before and after Seattle’s implementation, she said, was in the hospitality sector — which includes food and hotel workers. Before the policy went into place, 14 percent of surveyed employers offered paid sick leave. After Seattle businesses started complying with the law, 78 percent of those businesses offered paid sick leave.
Employees describe having paid sick leave as a relief.
“I feel like it’s a huge burden lifted off someone who works in this industry,” said Andrea Lauritsen, a waitress at Meinert’s Lost Lake Cafe in Seattle’s Capitol Hill neighborhood. Her sentiments were echoed by a handful of other waitstaff across the city, who did not want to give their names without their bosses’ approval.
Businesses said adding sick leave to their worker benefits package cost less than they thought, Romich said.
“It hasn’t negatively affected the bottom line at all,” said Molly Moon Neitzel, founder of Molly Moon’s Homemade Ice Cream Shop, which has expanded to six locations since opening in 2008.
Gabriel Block, CEO of California-based Crossroads Trading Co., said implementing paid sick leave for its Seattle location was not hard, and didn’t require raising costs. Crossroads, a consignment clothing store, has about 400 employees in its 32 stores across five states.
Neitzel employs about 100 people in the summer and 45-50 in the winter. Almost all are part-time, she said.
“I heard a lot of fear from my business owner peers and friends before the law,” she said. “But I think what everyone has seen is, workers use sick days when they’re sick and they don’t use them when they’re not.”
That jibes with Romich’s research.
“You are always going to have people who have concerns about the impact of cost,” Romich said. But “the cost was far less than the employers had estimated.”
Of those who responded to the survey, the average cost to provide sick leave was four-tenths of 1 percent of annual revenue. The study could not find evidence that any businesses went under because of the sick leave law.
But Santillanes said any increase in cost is felt on his balance sheet. His eight restaurants in Seattle employ about 500 people. The sick-leave law has popped his costs by $17,600 per restaurant the first year and $19,200 per restaurant the second year. About two-thirds of that is the cost of the leave, with the remaining third the cost of overtime to cover the shifts of people who use sick leave.
He’s increased the price on some of his sandwiches by about 20 cents, he said, as well as tried to cut other operating costs. His profit margin is 5 percent to 6 percent at best, he said. Other factors stacked against him: Lack of total price control. Vendors who won’t negotiate. Franchise fees.
“We have expenses that an independent operator doesn’t have,” Santillanes said. “We skate on thin ice to begin with.”
Meinert, who owns six neighborhood restaurants, opened five of them after the law was in effect. In the one that was already opened, he instituted a major benefit package that included not just paid sick leave but 401(k) matching, profit-sharing and health insurance. To cover the entire benefit package, he raised prices 3.5 percent across the board.
He acknowledged that other business owners might not have as easy a time.
“It’s a really hard analysis,” he said. “I own six restaurants. If it costs me a little bit, like 1 percent, and my average margin overall is 15 percent, I’m not losing much. But if I’m a single operator with a small margin, it’s a totally different story.”
Meinert and other business owners said Seattle’s minimum wage increase is a much bigger burden than the sick leave law.
Living in Seattle is becoming more expensive by the year, and Seattle’s leadership is avoiding the real problem, said Tracy Taylor, manager of Elliott Bay Book Co., a Seattle institution that’s been in business since 1973.
“This is a housing crisis,” Taylor said. “Seattle needs to look at affordable housing. Employees have to be able to afford to live here, and it can’t all be on us.
“It’s hard to talk about. We want our employees to be treated well,” Taylor said. “But this can’t keep falling on small business owners’ shoulders.”
Tacoma voters could decide a $15 minimum wage issue on the ballot this fall if advocates collect enough signatures by mid-June.
BUSINESSES FACE HURDLES
Seattle business owners have found the sick-leave law hard to administer. Romich’s research showed the biggest worry of Seattle businesses was how to update payroll software or benefit manuals to comply with the new law. Santillanes, the McDonald’s franchisee, paid his payroll vendor a one-time fee of about $3,000 to adjust for paid sick leave.
“What we’ve learned from Seattle is, the more complicated it gets, the more expensive it is for employers to put into place,” said Tom Pierson, president and CEO of the Tacoma-Pierce County Chamber. “Making it simple makes it a real benefit for employees.”
The Tacoma business owners who are aware of the city’s new law are just keeping an eye on the rule-making, he said. Overall, though, the Chamber isn’t hearing much.
“I think there’s still a lot of people who are unaware of what this means for them,” Pierson said. That’s why outreach by the city and the Chamber will be key.
In Seattle, the law’s complexity has not helped. All businesses with five or more full-time-equivalent workers must provide at least five days of paid sick leave per year. Smaller Seattle businesses struggled with whether they met that minimum threshold. Businesses with more than 250 workers must provide at least nine paid sick days.
Santillanes, the McDonald’s franchisee, said Seattle’s law creates imbalances in the market by having different rules for different businesses.
“There should be one set of rules for everyone. That’s the fair way to approach this,” he said.
The relative simplicity of Tacoma’s ordinance should help businesses here comply, Romich said. Tacoma will require all businesses regardless of size to provide at least three days of paid sick time per year. If the worker doesn’t use all of that time in the first year, they can carry it over into year two, when they can use up to five days of paid time off.
Tacoma could take a few steps to save frustration down the road. Romich said Seattle businesses felt rushed to change their policies to comply with the law.
“We talked in particular to many (human resources) professionals who said ‘We want to do the right thing, and we had to review the policies and run them by a lawyer,’ ” Romich said. “They found it difficult to comply soon enough.”
Seattle’s ordinance was also confusing for small businesses, who don’t have to comply with the law until they have more than four, full-time equivalent workers.
“It was complicated and caused a lot of ambiguity,” Romich said. The study included an interview with one small employer, who probably wasn’t required to provide sick leave, but did just in case. “You could have a coffee shop with eight employees, but if they didn’t add up to four (full-time workers) they wouldn’t (have to provide sick leave).”
Jersey City Mayor Fulop said Tacoma should make efforts to educate the business community.
“The challenges that will come are not going to be the employers disregarding the law willfully, it’s going to be (them) not knowing what the expectation is going to be from the Tacoma government,” Fulop said.
In Tacoma, public hearings to create the policy’s rules could start in May, with the city reaching out to various businesses to ask for feedback, city attorney Pauli said. The city is going to hire at least one person before the law goes into effect next year to educate businesses on the change.
“Our tentative goal is to have (rulemaking done) by midsummer,” said Tacoma Finance Director Andy Cherullo. “That gives (businesses) the rest of the summer and fall to do whatever they need to do internally.”
The rulemaking process will address whatever is not covered by the city ordinance, Cherullo said. For instance, it’s currently unclear whether delivery drivers traveling through Tacoma would accrue paid leave, he said.
Business owners must get involved in writing the rules, the Seattle business owners agreed, to ensure that the rules are practical. And start talking to employees now.
“All the costs not withstanding, communication with employees is paramount,” Santillanes said. “We were very up front. ‘This is the way the program works. Try to give us some lead time so we can schedule accordingly. We understand emergencies occur.’ ”
“If they’ll work with us, we’ll work with them,” he said.